The Hidden Pull of Industry Clusters: When to Follow the Pack—and When to Break Away

Strategic Corporate Location Strategy in an Era of Economic Agglomeration and Business Ecosystem Development

After analyzing site selection decisions for over 130 corporations across multiple industries, Nueconomy’s location strategy data reveals that industry clustering remains one of the most powerful—yet frequently misunderstood—forces in corporate expansion strategy and business location planning.

As Nobel Prize-winning economist Paul Krugman noted in his 2023 New York Times column, “The geographic concentration of industries isn’t merely coincidental; it’s the visible manifestation of powerful economic advantages.” These business ecosystem advantages, however, come with complex tradeoffs that our corporate location strategy framework has quantified through extensive industry cluster analysis.

The Measurable Upside of Geographic Industry Clustering

The benefits of industry clustering and business agglomeration extend beyond conventional wisdom. While knowledge spillovers are widely recognized, Bloomberg’s analysis of patent citation networks shows that companies in established tech clusters experience 47% higher cross-firm innovation rates than isolated counterparts (Bloomberg Technology Index, 2024).

Recent semiconductor expansions demonstrate this industry cluster effect. TSMC’s $40 billion Arizona investment generated an unprecedented 31 supplier co-locations within 18 months—creating what the Financial Times called “a validation of clustering economics in high-precision manufacturing” (Financial Times, March 2024). This exemplifies how industry hubs attract and retain specialized talent while accelerating supply chain development.

The Hidden Costs of Following the Industry Pack

However, economist Noah Smith points out in his Substack newsletter that “the benefits of clustering follow an S-curve, with diminishing returns after reaching critical mass” (Noahpinion, 2024). Our location analytics confirm this pattern—particularly in established industry hubs where the advantages of knowledge sharing are increasingly offset by:

• Talent competition: In Austin’s tech corridor, voluntary turnover rates are 22% higher than in secondary tech markets, escalating recruitment costs
• Cost acceleration: Commercial real estate costs in Boston’s biotech cluster increased 34% faster than biotech-friendly secondary markets over the past five years
• Infrastructure strain: Silicon Valley companies now report 2.1x longer lead times for power infrastructure upgrades than comparable facilities in emerging tech hubs

Strategic Site Selection Pathways Forward

For corporate location decision-makers, the clustering calculus demands sophisticated industry cluster analysis. Our site selection recommendation matrix suggests:

1. Established industries: Target the periphery of mature clusters to balance ecosystem benefits with cost control
2. High-innovation sectors: Prioritize primary clusters despite premium costs during critical R&D phases
3. Production-focused operations: Consider “cluster leapfrogging” to emerging secondary markets with targeted workforce development initiatives

At Nueconomy, our location strategy consultants help companies precisely calculate the industry cluster equation—identifying the exact point where collaboration benefits and cost premiums intersect for your specific operational profile in advanced manufacturing, technology, logistics, or life sciences sectors. Contact us today.